PAPER

Subject : Marketing Policy and strategy

Lecture : Mrs. Andriani Kusumawati, S.Sos., Msi., DBA.

BUILDING CUSTOMER SATISFACTION THROUGH

QUALITY, SERVICE, AND VALUE

Created by:

TIRTA PERKASA (145030207121001)

HENRY PAMUNGKAS (145030207121006)
K CLASS
BUSINESS ADMINISTRATION
FACULTY OF ADMINISTRATIVE SCIENCE
BRAWIJAYA UNIVERSITY
2016
PREFACE
 Praise to God who has helped his servant finish this paper with great ease.
Without his helped may not be able to complete the author well.

This paper is organized so that readers can find out the explanation and
understand the definition of customer value and satisfaction, know the companies can
retain the customers, determine customer profitability, implementating total quality
marketing, and leading companies organization to produce and deliver high customers
value and satisfaction. This paper set up by the compiler with various obstacles.
Whether it came from self constituent or who come from outside. But with patience and
especially the help of god finally this paper can be resolved.

This paper chosen because the authors must finish and give the assignment from
lecture to get score and assignment completely.

Authors also thank the lecturer and friends who have helped to finish this paper.
Hopefully this paper can provide a broader insight to the reader. Although this paper has
advantages and disadvantages. Authors beg for advice and criticism. Thank you.

Malang, 24th September 2016

Author

TABLE OF CONTENTS

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PREFACE..............................................................................................1

TABLE OF CONTENTS..............................................................................................2

CHAPTER I INTRODUCTION.......................3

1.1 Background .............3

1.2 Formulation Of The Problem......4
1.3 Objective Of The Write...4

CHAPTER II DISCUSSION............5
2.1 Customer Value and Satisfaction......................................................................5
2.2 Delivering Customer Value and Satisfaction...................................8
2.3 Retaining Customers..............................................................................................9
2.4 Customer Profitability..........................................................................................12
2.5 Implementing Total Quality Marketing.................................................................14

CHAPTER III CLOSING....................................................................................17

3.1Conclusion.................................17
3.2Suggestion..................................................................................................17
REFERENCES.........................................................................................18

CHAPTER I

INTRODUCTION

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1.1 Background

Todays customers face a growing range of choices in the products and services
they can buy. They are making their choice on the basis of their perceptions of quality,
service, and value. Companies need to understand the determinants of customer value
and satisfaction. Customer delivered value is the difference between total customer
value and total customer cost. Customers will normally choose the offer that maximizes
the delivered value.

Customer satisfaction is the outcome felt by buyers who have experienced a

company performance that has fulfilled expectations. Customers are satisfied when their
expectations are met and delighted when their expectations are exceeded. Satisfied
customers remain loyal longer, buy more, are less price sensitive, and talk favorably
about the company.

A major challenge for high-performance companies is that of building and

maintaining viable businesses in a rapidly changing marketplace. They must recognize
the core elements of the business and how to maintain a viable fit between their
stakeholders, processes, resources, and organization capabilities and culture. Typically,
high-performing businesses develop and emphasize cross-functional skills rather than
functional skills (overall project management and results versus functional strengths
(best engineers, and so on.). They also build their resources into core capabilities that
become core competencies, distinctive abilities, and competitive advantages. This along
with a corporate culture of shared experiences, stories, beliefs, and norms unique to the
organization are the keys to their success.

To create customer satisfaction, companies must manage their value chain as well
as the whole value delivery system in a customer-centered way. The companys goal is
not only to get customers, but even more importantly to retain customers. Customer
relationship marketing provides the key to retaining customers and involves providing
financial and social benefits as well as structural ties to the customers. Companies must
decide how much relationship marketing to invest in different market segments and
individual customers, from such levels as basic, reactive, accountable, proactive, and
full partnership. Much depends on estimating customer lifetime value against the cost
stream required to attract and retain these customers. Total quality marketing is seen

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today as a major approach to providing customer satisfaction and company profitability.
Companies must understand how their customers perceive quality and how much
quality they expect. Companies must then strive to offer relatively higher quality than
their competitors. This involves total management and employee commitment as well as
measurement and reward systems. Marketers play an especially critical role in their
companys drive toward higher quality.

1.2 Formulation of The Problem

Related to the background of the study, there are some problems that may arise.
The author identifies the problems as follows:

1. What is the definition of customer value and satisfaction?

2. How do leading companies organization to produce and deliver high
customers value and satisfaction?
3. How can companies retain customer as well as attract customers?
4. How can companies determine customer profitability?
5. How can companies practice total quality marketing?

1.3 Objective of The Write

1. To understand the definition of customer value and satisfaction.

2. To know the step of leading companies organization to produce and deliver
high customers value and satisfaction.
3. To know how companies can retain the customer.
4. To know how companies determine customer profitability.
5. To understand the companies can implementating total quality marketing.

CHAPTER II

DISCUSSION

2.1 Customer Value and Satisfaction

Todays customers face a vast array of product and brand choices, prices, and
supplier. This is the question : How do customers make their choices?

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 We believe that customers estimate wich offer will deliver the most value. Then
they learn whether the offer livev up to the valu expectation and this affects their
satisfaction.

Here we will examine more carefully the concepts of customeres value and
customer satisfaction.

Customer Value

From Marketing Management by Philip kotler that buyers will buy form the firm
that they perceive to offer the highest customer delivere value. Customer delivered
value is the difference between total customers value and total customers cost. And the
total customer value is the bundle of benefits customers expect form a given product or
service.

We can explain customer deliverd value in term of an example. We use buyer

decision making thory of Indonesian timber company when they want to buy a tractor.
And he will buy it from either Caterpillar or Komatsu. Suppose he evaluates the two
tractor and judge Caterpillar as offering more total customer value from four source :
product, services, personnel, and image.

The question is does they buy the caterpillar tractor ? he also examine the total
customer cost of transacting with Caterpillar versus Komatsu. It includes the buyers
anticipated time, energy, and psychic cost and monetary cost. The buyer now considers
whether Caterpillars total customer cost is too high in relation to Caterpillars total
customer value.The buyer might buy the Komatsu tractor.

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 To help Caterpillar succeed in selling its tractor to this buyer. Caterpillar can
improve its offer in three ways. Firts, augment total customer value by improving
product, service, personnel, and image benefits. Second, Caterpillar can reduce the
buyers nonmonetary cost by lessening the buyers time,energy, and psychic cost. Third,
Caterpillar can reduced its monetary cost to the buyer.

Product value

Service value

Total customer value

Personel value

Image value

Customer delivered value

Monetary value

Time cost

Total customer cost

Energy cost

Psychic cost

Customer Satisfaction

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 Satisfaction is the level of a persons felt state resulting form comparing a products
perceived performance in relation to the persons expectation.

Companies seeking to win in todays markets must track their customers

expectation, perceived company performance, and customers satisfaction. Here are
some methods of tracking and measuring customer satisfaction :

Complaint and Suggestion System

A customer-centered organization would make it easy for its customers to
deliver suggestions and complaints. Many restaurant and hotels provide forms
for guests to report their likes and dislikes for examples.
Customer Satisfaction Survey
Responsive vompanies obtain a direct measure of customer satisfaction by
conducting periodic surveys. They send questionnaires or make telephone calls
to a random sample of their recent customers to find out how they feel about
various aspects of the companys performance. They will also solicit buyers
views on their competitors performance.
Ghost Shopping
Another useful way to gather a picture of customer satisfaction is to hire person
to pose as potential buyers to report their findings on strong and weak points
they experienced in buying the companys and competitors product. These ghost
shopper can even pose certain problems to test whether the companys sales
personnel handle the situation well. Thus a ghost shopper can complain about a
restaurants food to test how the restaurant handles this complaint.
Lost Customer Analysis
Companies should contact customers who have stopped buying or who have
switched to another supplier to learn why this happend.Not only is it important
to conduct exit interviews but also to monitor the customer loss rate, which, if it
is increasing, clearly indicates that the company is failing to satisfy its
customers.

Some Cautions in Measuring Customer Satisfaction

When customers rate their satisfaction whit an element of the companys
performance, say delivery, we need to recognize that customers will vary in how
they define good delivery: it could mean early delivery, on time delivery, order
completeness, and so on.

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2.2 Delivering Customer Value and Satisfaction

The question for this chapter is : what dose it take to produce and deliver customer
value and satisfaction ? to answer this we need to know the concepts of a value chain
and value delivery system.

Value Chain

Michael Porter of Harvard proposed the value chain as a company tool for
identifying ways to create more customer value. The value chain identifies ninen
stratgically relevant activities that create value and cost in a specific business. Consist of
five primary activities and four support activities.

The primary activities represent the sequence of bringing materials into the
business, operating on them, sending them out, marketing them, and servicing them.The
support activities occur throughout all of these primary activities.

The firms task is to examine its cost and performance in each value-creating
activity and to look for improvements. To the extent taht it can perform certain activities
better than its competitors, it can achieve a competitive advantage. Too often, company
departments act to maximize their departments interests rather than the companys and
customers inetersts. A traffic department chooses to ship the good by rail to save the
department money and again the customer waits. That slow down the delivery of quality
customer service.

Value-Delivery System

The firm also needs to look for competitive advantages beyond its own value chain,
into the value chains of its suppliers, distributors, and ultimately customers. More
companies today are turning to partnering with the other members of the supply chain to
improve the performance of the customer value delivery system.

An excellent example of a value-delivery system is the one that connects Levis

Straus, the famous makerof blue jeans, With its U.S. suppliers and distributors. Levis
learns the size and styles of its blue jeans that sold through sears and other major outlets

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using electronic data interchange (EDI). Levis then electronicallly orders more fabric
for next day delivery form its fabric supplier, who in turn, relays an order for more fiber
to Du Pont, the fiber supplier. In this way, the partners in the supply chain use the most
current sales information to manufature what is selling, rather than to manufature for a
forecast that may be at variance with curent demand. The good are pulled by demand,
rather than pushed by supply.

In structuring customer value delivery systems, the new competition is no longger

between individual competitiors but between the relative effectiveness of competing
value delivery system organization by these competitors. The new view of marketing is
that it is responsible for designing and managing a superior value delivery system to
reach target customers segment. Marketing executives must think not only about selling
todays product but also about stimulating the development of improved company
products, working actively with other departments in managing core business processes,
and building stronger external partnership.

2.3 Retaining Customers

In the past, many companies took their customers for granted. Their customer either
did not have many alternative supplier, or the other were just a deficient in quality and
service, or ther market was growing so fast that the company did not worry about fully
satisfying its customers. This is a condition of high customer churn and it involves a
higher cost than if the company can retained all customer and acquired no new ones.

The Cost of Lost Customers

There are four step to reduce customer defection rate. First, The company must
define and measure its retention rate. Second, The company must distinguish the various
causes of customer attrition and identify those that can be managed better. Third, the
company needs to estimate how much profit it loses when it loses customers
unnecessarily. This is the same as the customers customers lifetime value, namely the
profit that would have been yielded by the customers if he had countinued purchasing

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for the normal number of years. For the case of a group of lost customers, a major
transportation carrier estimated the profit loss as follow:

The company had 64,000 accounts.

The company lost 5% of its accounts this year specifically due to poor service,
namely 3,200 accounts (.05 * 64,000)
The average lost account represented a $40,000 loss in revenue. Therefore, the
company lost $128,000,000 in revenue (3,200 * $40,000)
The companys profit margin is 10%. Therefore, the company lost $12,800,000
unnecessarily (.10 * $128,000,000)

Fourth, the company needs to figure out how much it would cost to reduce the defection
rate. As long as the cost is less then the lost profit, the company should spend that
amount.

The Need for Customer Retention

The fact that the cost of attracting a new customer may be five times the cost of
keeping a current customers happy. Because offensive marketing requires much effort
and cost to induca satisfied customers to switch away from their current supplier.
According to Reichheld and Sasser, companies can improve profit anywhere from 25%
to 85% by reducing customer defections by 5%. We can work out an example to support
the case for emphasizing customer retention. Suppose a company researches its new
customer acquisttion cost. It Finds:

Cost of an average sales call (including $300

salary, commission, benefits, and
expenses)
Average number of sales calls to convert 4
an average prospet into a customer ____x
Cost of attracting a new customer $1,200

This is an underestimate because we are omitting the cost of adversiting and promotion,
operations, planning, and so an.

Now suppose the company estimate the probable average customer lifetime
value;

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Annual customer revenue $5,000
Average number of loyal years X 2
Company profit margin X .10
_______
Customer lifetime value (undiscounted $1,000

Clearly this company is spending more to attract new customers than they are worth.

Customer Relationship Marketing : The Key

The question is how much should a company invest in relationship marketing,

given the extra cost and effort that it involves ? firts we must to distinguish five
different level of relating to customers to answer this :

Basic : The salesperson sells the product but dose not contact the customer again
Reactive : The salesperson sells the product and encourages the customers to call
if he or seh has any question or complaints
Accountable : The salesperson phone the customer a short time after sale to
check whether the product is meeting the customers expectation. The
salesperson also solicits from the customer any product improvement
suggestions and any specific disappointments. This information helps the
company to improve their offering.
Proactive : The company salesperson phone the customer from time to time with
suggestions about improved product use or helpfull products.
Partnership : The company works continuously with the customer to discover
ways to effect customer saving or help the customer perform better.

Application of each levels of Relationship Marketing is depend on the companys

margin and amount of companys customers or distributors, like we can see at this table:

HIGH MARGIN MEDIUM LOW MARGIN

MARGIN
Many Customers/ Accountable Reactive Basic or reactive
distributors
Medium number of Proactive Accountable Reactive
customers/
distributors

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 Few customers/ Partnership Proactive Accountable
distributors

2.4 Customer Profitability

Many companies report that their most profitable customers come from their mid-
size customers. The largest customers demand considerable service and receive the
deepest discount, thus reducing the companys profit level. The smallest customer pay
full price and receive minimal service but the costs of transacting with small customers
reduce their profitability. So the most profitable is the mid-size customers receive good
service and pay nearly full price. Ultimately, marketing is the art of attracting and
keeping profitable customers.

While customers often make many good suggestions, they also suggest many
courses of action that are unactionable and unprofitable, so some organizations try to do
anything and everything customers suggest. It fundamentally different from market
focus (making diciplined choices of which customers to serve and which spesific
combination of benefits and price to deliver / or deny them). So appear a new questions
of What is profitable customer?

According to Philip Kotler, "a profitable customer is a person, household, or a

company that yields a revenue stream overtime, exceeding by an acceptable amount the
company cost stream of attracting, selling and servicing that customer." Note that the
emphasis is on the lifetime stream of revenue and cost, not on the profit from a
particular transaction.

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 Calculating customer profit is an important step in understanding which customer
relationships are better than others by using the customer/product profitability analysis.
Often, the firm will find that some customer relationships are unprofitable. The firm
may be more profitable without these customers. At the other end, the firm will identify
its most profitable customers and be in a position to take steps to ensure the
continuation of these most profitable relationships.

We observe that customer 1 is very profitable in that he buys three profit-making

products, namely P1, P2, and P4. Customer 2 yields a picture of mixed profitability, he
buys one profitable product and one unprofitable products. Customer 3 represents a
losing customer because he buys one profitable product and two unprofitable products.

What can the company do about this?

1. It can raise the prices of its less profitable products, or eliminate them
2. It can also try to cross-sell its profit-making products to these unprofitable
customers. If they are choose to defect, it may be for the good. One could even
argue that the company would benefit by encouraging its unprofitable customers
to switch to the competitors.

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 Customer profitability is challenging to implement; it draws into question our
understanding of who our customers are and how we make profit. It can add powerful
insights throughout the business, helping to focus decision making energies on doing
what is right for comapny customers and shareholders at the same time. In a customer-
centric organization, measuring customer profitability has become a business
imperative: without it there is no fact basis for managing the value exchange between
company and customers.

2.5 Implementing Total Quality Marketing

Customer satisfaction and company profitability are linked closely to product and
service quality. Higher levels of quality result in greater customer satisfaction, while at
the same time supporting higher prices and often lower costs. Therefore, quality
improvement programmes normally increase profitability.

The task of improving product and service quality should be a company's top
priority. Companies today have no choice but to adopt total quality management if they
want to stay in the race, let alone be profitable. total quality management (TQM)
Programmes designed to continuously improve the quality of product, service and
marketing processes.

According to GE's chairman, John F. Welch, Jr: "Quality is our best assurance of
customer allegiance, our strongest defence against foreign competition and the only path
to sustained growth and earnings".

Quality has been variously defined as 'fitness for use', 'confonnance to

requirements' and 'freedom from variation'. The American Society for Quality Control
defines quality as the totality of features and characteristics of a product or service that
bear on its ability to satisfy stated or implied needs. This is clearly a customer-centred
definition of quality. It suggests that a company has delivered quality whenever its
product and service meets or exceeds customers' needs, requirements and expectations.
A company that satisfies most of its customers' needs most of the time is a quality

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company. It is important to distinguish between performance quality and conformance
quality.

Performance quality refers to the level at which a product performs its functions.
Conformance quality refers to freedom from defects and the qualify the totality
of features and characteristics of a product or service that bear on its ability to
satisfy stated or implied needs.

Marketing shares with other functions the responsibility for striving for the highest
quality of a company, product or service. Marketing's commitment to the whole process
needs to be particularly strong because of the central role of customer satisfaction to
both marketing and total quality management (TQM). Within a quality-centre company,
marketing management has two types of responsibility:

1. Marketing management participates in formulating the strategies and policies

that direct resources and strive for quality excellence.
2. Marketing has to deliver marketing quality alongside product quality.

It must perform each marketing activity to consistently high standards: marketing

research, sales training, advertising, customer services and others. Much damage can be
done to customer satisfaction with an excellent product if it is oversold or is 'supported'
by advertising that builds unrealistic expectations.

Within quality programmes, marketing has several distinct roles:

1. Marketing has responsibility for correctly identifying customers' needs and

wants, and for communicating them correctly to aid product design and to
schedule production.
2. Marketing has to ensure that customers' orders are filled correctly and on time,
and must check to see that customers receive proper instruction, training and
technical assistance in the use of their product.
3. Marketers must stay in touch with customers after the sale, to make sure that
they remain satisfied.
4. Marketers must gather and convey customers' ideas for product and service
improvement back to the company.

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 TQM has played an important role in educating businesses that quality is more than
products and services being well produced, but is about what marketing has been saying
all the time: customer satisfaction. At the same time, TQM extends marketing's view to
realize that the acquisition, retention and satisfaction of good employees is central to the
acquisition, retention and satisfaction of customers.

Total quality is the key to creating customer vaiue and satisfaction. Total quality is
everyone's job, just as marketing is everyone's job:

Marketers who don't learn the language of quality improvement, manufacturing and
operations will become as obsolete as buggy whips. The days of functional marketing
are gone. We can no longer afford to think of ourselves as market researchers,
advertising people, direct marketers, marketing strategists - we have to think of
ourselves as customer satish'ers - customer advocates focused on whole processes.

The implication here is that marketers must spend time and effort not only to
improve external marketing, but also to improve internal marketing. Marketers must be
the customer's watchdog or guardian, complaining loudly for the customer when the
product or the service is not right. Marketers must constantly uphold the standard of
giving the customer the best solution.

CHAPTER III

CLOSING

3.1 Conclusion

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 Based on the description of the discussion "Building Customer Satisfaction
Through Quality, Service, And Value. We can conclude that customer satisfaction is the
outcome felt by buyers who have experienced a company performance that has fulfilled
expectations. Satisfied customers remain loyal longer, buy more, are less price sensitive,
and talk favorably about the company. To create it, companies must manage their value
chain as well as the whole value delivery system in a customer-centered way. The
companys goal is not only to get customers, but even more importantly to retain
customers. Customer relationship marketing provides the key to retaining customers and
involves providing financial and social benefits as well as structural ties to the
customers. Companies must decide how much relationship marketing to invest in
different market segments and individual customers depends on estimating customer
lifetime value against the cost stream required to attract and retain these customers.

Companies must understand how their customers perceive quality and how much
quality they expect. Companies must then strive to offer relatively higher quality than
their competitors. Total quality marketing is seen today as a major approach to
providing customer satisfaction and company profitability.

3.2 Suggestion

That is the paper which author created. Author aware of the many shortcomings and
far from the perfect point. There are still many errors on this paper. The author also
takes criticism and suggestions in order to make the motivation for the authors, so that
in the future can be better. Thank you for person who has helped me to finish this paper.

REFERENCES

Kotler, Philip. (1996). Marketing Management, An Asian Perspective.

Prentice Hall, Inc., Upper Saddle River. New Jersey.

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Littler, Dell and Dominic Wilson. (1995). Marketing Strategy. British Library
Cataloguing, England.

http://marketinglessons.in/2011/10/17/building-customer-satisfaction-
philip-kotler-summary/

http://www.managementstudyguide.com/building-customer-
satisfaction.htm

http://www.zabanga.us/sales-promotion/defining-customer-value-and-
satisfaction.html

http://marketingwizdom.com/strategies/retention-strategies

http://www.businessknowhow.com/marketing/retain-customers.htm

http://www.zabanga.us/sales-promotion/implementing-total-quality-
marketing.html

https://www.isixsigma.com/methodology/total-quality-management-
tqm/introduction-and-implementation-total-quality-management-tqm/

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